2010 (4) TMI 1228 - AT - Income Tax

Summary

Issues Involved:
1. Deduction of bad debts u/s 36(1)(vii) of the I.T. Act, 1961.
2. Applicability of judicial precedents regarding bad debts write-off.
3. Classification of the assessee's business activities.

Summary:

Issue 1: Deduction of Bad Debts u/s 36(1)(vii)
The revenue challenged the allowance of the assessee's claim of bad debts amounting to Rs. 242.08 lakhs, arguing that the pre-condition laid down in section 36(2)(i) was not satisfied as the debt had not been taken into account in computing the income of the assessee. The Assessing Officer (AO) observed that the principal amount of hire purchase or lease finance was not allowable as the assessee was neither a banking company nor engaged in money lending. The AO allowed bad debts to the extent of Rs. 2,34,05,948/- after reworking the claim.

Issue 2: Applicability of Judicial Precedents
The CIT (A) deleted the addition following the decisions of the Hon'ble Bombay High Court in the case of Omaprakash B Salecha and the ITAT Delhi in the case of Tulip Star Hotel Ltd v ACIT. The revenue argued that the decision in Tulip Star Hotel was not applicable as it pertained to inter-corporate deposits, not leasing and hire purchase transactions. The ITAT noted that the leasing and hire purchase activities were considered fund-based activities and part of money lending business for NBFCs, thus applicable to the assessee's case.

Issue 3: Classification of Assessee's Business Activities
The revenue contended that the assessee's principal business was not money lending as the income from leasing and hire purchase was less than 50% of the total turnover. The ITAT held that the composition of income cannot be a deciding factor and that the assessee, being a non-banking finance company (NBFC), fulfilled the conditions laid down u/s 36(1)(vii) r.w.s 36(2)(i). The ITAT also referenced the ITAT Delhi's decision in DCIT v. Srei International Finance Ltd., which supported the view that NBFC activities involve money lending.

Conclusion:
The ITAT dismissed the revenue's appeal, affirming that the assessee's write-off of bad debts was allowable under section 36(1)(vii) as the assessee was engaged in money lending activities as an NBFC. The cross objection filed by the assessee was dismissed as infructuous. The judgment was pronounced in the open court on 30th April, 2010.